Rising oil prices threaten to derail Prime Minister Sanae Takaichi's economic agenda as crude trading between $100 to $120 per barrel would trigger a supply shock, adding nearly half a percentage point to Japan's consumer inflation. Monex Group's Jesper Koll warns this directly conflicts with Takaichi's public promises to reduce energy and food costs for Japanese households.

Higher crude prices would widen Japan's trade deficit and amplify imported inflation, pressuring the already weak yen which has fallen 0.4% against the dollar recently. This complicates the Bank of Japan's policy normalization, with Koll suggesting fiscal support might be more appropriate than rate hikes amid supply-driven price increases.

Markets price in a 60% chance of a BOJ rate increase by April, as Governor Kazuo Ueda maintains commitment to policy tightening. Meanwhile, Koll remains constructive on the dollar, projecting Japanese investors will continue recycling current account surpluses into global assets, particularly U.S. securities, as oil-driven economic pressures mount.